It wasn’t until 1909 that the Copyright Act protected musical compositions from being mechanically reproduced by any “instruments” (mechanical devices) without the author’s permission. According to What They’ll Never Tell You About The Music Business by Peter M. Thall, the “instruments” or devices in question were piano player rolls and eventually Edison cylinders- the first record players.”[1] Thall stated that even though the devices that we might still use today such as CD’s DVD’s Cassette tapes DVD’s, Mp3’s, DPD formats and internet applications were not conceived during this time, they are still “subsumed” under an expanded copyright legislation referred to as the “bundle of rights.”
Today, the right to reproduce a sound recording can be a writer or publishers most important copyright. Whether it is through a blog page, on a compact disk, or any of the mediums listed above, these “mechanical” copies of recorded music reach modern audiences much faster than any printed counterpart and have become a prime source of revenue for music publishers around the world.
“Mechanical royalties” are traditionally paid by the record label to the publisher for the rights to use the songs in commercial releases. When a writer signs with a publisher, or begins their own publishing company for their songs, those songs are officially “administered” by that publishing company name. Any time from then on, if a record label wants to release one or more of those songs, they must purchase “mechanical licenses” from that composers administering publishing company to do so. Thus, a publisher would be involved in mechanical licensing when a composers song(s) gets used in a release that will sell in the form of CD, cassette, mp3, ringtone, or online stream.
Sometimes there will be two publishers that split administration on the same song, usually when there are multiple writers. Mechanical royalties are an extremely significant source of income for all music publishing entities, even if they share the rights on many songs that they administer.
Royalty rates are usually measured by the penny amount per song on the release. For example, if Eric Clapton wrote all ten songs on his new CD, and his record label agreed to pay 10 cents per song, his publishing company would make one dollar in mechanical royalties for every CD sold. Traditionally, the publisher will split these royalties with the composer 50/50, although any deal between the publisher and composer agreed in writing can be possible. However, if the writer owns their own publishing, then it's likely that they can take the full 100%.
In 1978, U.S. Congress implemented that all mechanical rates be increased “from 2 cents to 2.75 cents for each work embodied on a phonorecord or one-half cent per minute of playing time or fraction thereof, whichever amount is larger.”[2] This marked the beginning of the slowly increasing “statutory rate” (government regulated rate) that many labels pay for what is called a “compulsory mechanical license.” Currently the statutory rate is 9.1 cents per composition or 1.75 cents per minute or fraction thereof over 5 minutes, very common in digital downloaded royalties as they are almost always licensed at this rate.
Not all license rates are government regulated with statutory rates, some publishers and record labels use “negotiated licenses” whose rates can be much higher or lower depending on the bargaining power of their employees and the circumstances of their product. A common negotiated rate is 75% of stat- (75% x $.091 = $.06825). If a publisher has a lot of bargaining power they could get up to the full 100% of stat ($.091) or all the way to 24 cents per song.
When signed to a major label, it is likely that the Artist, who might or might not have written these songs on the release, has an established royalty rate set by his record contract (or as we like to call it his “Artist Agreement”.) If all of Eric Clapton’s original compositions were controlled under this artist agreement for the same royalty rate, he would be deemed a “controlled” composer and every song that he wrote with that label would be called a “controlled composition.” Normally, a controlled composition clause in an artist agreement will say something like “they will be paid no more than the lesser of 8 cents per controlled composition or 5% the wholesale price of the product being released.” Sometimes this rate will be fixed for an artist’s entire career, or sometimes there will be what is called an “escalation clause” that will raise their rates after a certain number of products have been released. Another factor in an Artist agreement that commonly affects a controlled composers rate is the idea of “recoupment.” This refers to the controlled artist paying back dues to the record label (usually recording costs or excess packaging on products) before any royalties can be accrued.
There are other agreements and amendments that can determine royalty rates on mechanical licenses such as producer agreements, where the producer, label and artist agree that the producer gets a piece of writers credit on a specific release. Some agreements will state that the artist or publisher must issue mechanical licenses free of charge for promotional uses; when they are issued to the label for free they are often called “gratis” licenses.
Many publishers who do not have a staff to negotiate with record labels or collect foreign royalties from sub-publishers often hire out other companies to do their negotiating, licensing, and even collecting- by far the largest would be the Harry Fox Agency (HFA) a branch of the National Music Publishers Association (NMPA). “In 1927, the National Music Publisher's Association established HFA to act as an information source, clearinghouse and monitoring service for licensing musical copyrights. Since its founding, HFA has provided efficient and convenient services for publishers, licensees, and a broad spectrum of music users.”[3]
HFA is a good source for companies who don’t want to hire a large staff in mechanical licensing and can just pay off the 6.75% that HFA takes as commission. It is also a great alternative for an upcoming Artist with no knowledge of publishing or licensing to pay someone else to do all the legal work in licensing their cover album. However HFA does not issue synchronization licenses (for film & television / DVD formats) or any performance licenses – just physical mechanicals (such as CD’s cassette etc..) digital downloads and online streaming licenses.
One disadvantage of HFA from a publisher’s perspective is the timing of payment. HFA usually takes an extra six months to process the licenses, collect the royalties, calculate their share and send the checks; so many publishers opt to avoid HFA if they expect their cash sooner. It has become a growing trend for publishers to provide licensing direct to labels and outlets for the first use of a song or album; then consult HFA for the second usage and on. This is because they want that initial payment right away; then they let HFA take care of the tracking and licensing for future uses. A good example would be EMI and the Rolling Stones. A big publisher like EMI has the support to provide licenses for a big Stones release and they want the first check now; but they do not want to return to these songs after this first use. So EMI will hire HFA to license the second use and all others from then on so they do not have to deal with keeping track of every single use.
The disadvantage of hiring HFA from a record label perspective is that the publishing verification of HFA is not always accurate. The website has many, many songs on file to match the publishers with the writer and song title. The problem is that the rights change hands so many times that the database becomes obsolete on the daily basis and this slows down the licensing process for prospective licensees.
Harry Fox is a tool that be used by publishers and all outlets mechanical for uses of recorded music. Whether it is a good idea to hire HFA really is constrained to a case-by-case basis. Either way mechanical licenses are an important revenue source for all record labels, publishers, composer and artists alike.
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